Panama Canal - draught disrupting Global Trade

In recent weeks, Ziegler One has been dedicated to providing you with up-to-date information on the latest developments in the Panama Canal. Our goal is to keep you well-informed about the challenges and changes that are occurring in this vital global trade route.

In the latest update on November 9, 2023, Ziegler One delved into various important aspects related to the Panama Canal.

• 2023 Background
• Effects on LNG and LPG shipping
• Alternative - Reservation of slots

The conclusion was that while there are alternative options available, they are costly and limited to container lines that heavily rely on booking slots for specific transit dates and maintaining strict schedules. This preference for reservation slots allows for confident planning and efficient shipping processes. As a result of the capacity cuts, prices for reservation slots have skyrocketed in this year's auctions. This has forced larger container ships to operate with reduced cargo capacity or unload containers for transshipment across Panama. Unfortunately, gas carriers and bulkers do not have access to this alternative.

On Friday, November 10, 2023, it was reported that Flex LNB Ltd, a shipper and part of the Eneos Group from Japan, made a record payment of nearly $4 million to secure priority passage and expedite their transit through the Panama Canal.  Meanwhile, another ship has opted to embark on a journey around the South American continent.

The LPG tanker, the Sunny Bright, has been allocated a slot to cross the canal in a north-bound direction on November 15th. Currently, the vessel is underway using her engine, as confirmed by the recent update from Marine Traffic an hour ago.

SUNNY BRIGHT is a LPG carrier built in 2004 by MITSUBISHI HEAVY INDUSTRIES LTD - KOBE, JAPAN. She is currently sailing under the flag of Japan and formerly also known as SUNNY BRIGHT. It's gross tonnage is 45988 tons.

Before that, there were also other instances of queue jumping during Q3 of 2023:

• In August, A.P. Moller-Maersk, one of the world's largest shipping companies, made a remarkable bid in the Panama Canal auction. They offered an additional $900,000 on top of the ordinary toll of $400,000 to secure a slot for their vessel to sail through the waterway. 

• As per an account shared by Oystein Kalleklev, the CEO of gas shipping company Avance Gas Holding Ltd and a also a part of the Ereos Group, the winning bid in an auction conducted by the canal authorities to secure slots for vessels to navigate through the waterway during the week of August 20 reached an astounding $2.4 million.

The bidding process for slots has become fiercely competitive, with companies willing to pay significant premiums to secure their passage through the congested canal. The high demand for these slots is a direct result of the reduced capacity and limited transits caused by the record drought and lower water levels in Gatun Lake.

The reduction in transit slots may lead tramp vessels (A vessel which does not operate under any regular schedule from one port to another), including tankers and dry cargo ships, to seek alternate routes, potentially increasing demand for longer hauls and larger vessels. Dry bulk shipments have already shifted to alternate routes like the Cape of Good Hope or the Suez Canal instead of waiting at the Panama Canal.  

Due to these disruptions, rates have firmed in the gas and dry bulk ship markets. However, spot market liquidity has decreased as market participants assess the situation and explore alternative options. It remains to be seen how long these restrictions at the Panama Canal will persist and what long-term effects they will have on seaborne trade routes and the shipping industry as a whole.

However, there is a genuine possibility that large tankers may no longer be able to transit the Panama Canal starting from the beginning of next year. Additionally, Very Large Gas Carriers (VLGCs) are also likely to be excluded from the interoceanic waterway. These changes will have a significant impact on global seaborne gas and oil trading patterns, resulting in a shift in the tonnage landscape.

To address the water scarcity issue, the canal authorities have decided to significantly reduce the number of transits allowed through the canal. Over the coming three months, the number of transits will be reduced from 31 to just 18, and this figure will remain in effect until further notice. This reduction in transit slots will have a significant impact on various industries relying on the Panama Canal for their shipping needs.

Ziegler One will continue to monitor the situation, ensuring that we deliver timely updates to help you navigate the challenges and changes in this crucial global trade route.

Recent updates by Ziegler One:

Original URL(s):

https://www.businessinsider.com/panama-canal-shipping-company-paid-record-4-million-skip-line-2023-11#:~:text=This%20has%20seen%20bids%20for,million%20to%20skip%20the%20line.